Argentina digging in for lengthy debt dispute

Argentina’s request for the International Court of Justice to intervene in its debt battle with holdout creditors underscores the nation’s doggedness in fighting the hedge funds - and its technical default.

A woman walks by a graffiti that reads in Spanish 'Vultures,' in reference to the dispute between the Argentine government and a US hedge fund, known locally as 'vulture funds,' in Buenos Aires, Argentina, Monday, August 4, 2014.

“I don’t see a solution in the time period of a month,” says our correspondent in Buenos Aires. “Argentina is too belligerent in its attitude.”

A month ago the default seemed unlikely to many analysts and observers, including our correspondent, as the government had recently shown a strong push to regain access to global credit markets and it behooved the nation to avoid the default’s negative impacts to markets, inflation, and the local currency. That was a welcome expectation to investors such as Citigroup, which has since said that it could lose as much as $80 million due to regulators’ response to the default.

“The general consensus was that Argentina is not stupid, they’d shown increasing practicality,” says our reporter. “I think we underestimated Argentina’s pride in its position, its ability to stick to its guns and not be scared of what a default could do.”

The default will undoubtedly add an “unwanted headwind to a beleaguered economy,” adds our reporter, though in the short-term there have been few negative effects from the nation failing to pay interest on its restructured debt July 30. Argentina had deposited the $539 million payment with bond trustee Bank of New York Mellon, but US District Judge Thomas Griesa blocked its distribution because the government ignored his ruling to also pay the hedge funds.

Argentina argues that the US court is violating its national sovereignty. But before the International Court of Justice can step in, the US State Department must first accept the UN tribunal’s jurisdiction (the US withdrew from the ICJ in 1986 after the court ruled it owed Nicaragua war reparations).

While the Obama administration has shown support for Argentina’s position – issuing a brief saying that it "would be gravely concerned" about a similar action by a foreign court – there appears to be little chance of the US accepting The Hague as mediator.... For the rest of the story, continue reading at our new business publication Monitor Global Outlook.